Exempt vs Non-exempt Employees
Most workers are classified as either exempt or non-exempt depending on their salary and the type of work they do. The federal Fair Labor Standards Act (FLSA) requires that in addition to paying at least the minimum wage employers also must pay overtime to employees who work more than 40 hours in a given workweek, unless they meet certain exceptions. To complicate matters further, many states have wage and hour laws that may have more requirements than the FLSA. Employers must make sure they abide by both federal and state wage and hours laws to avoid legal trouble.
In addition to regular non-exempt employees and exempt employees, there are several other classifications of workers. It’s important to make sure that those workers actually meet the requirements for those classifications in the FLSA and your state’s wage and hour laws. Other classifications include volunteers, trainees, interns, independent contractors, and temporary employees.
Definition of non-exempt employee
Most employees are entitled to overtime pay under the Fair Labor Standards Act. They are called non-exempt employees. Employers must pay them one-and-a-half times their regular rate of pay when they work more than 40 hours in a week. The biggest problem most employers have with nonexempt employees is miscalculating how much overtime workers are owed.
Definition of exempt employee
The Fair Labor Standards Act contains dozens of exemptions under which specific categories of employers and employees are exempted from overtime requirements. The most common exemptions are the white-collar exemptions for administrative, executive, and professional employees, computer professionals, and outside sales employees. There is a also a lesser known exemption for certain retail or service organizations. The primary advantages of classifying employees as exempt are that you don’t have to track their hours or pay them overtime, no matter how many hours they work.
Obviously, this is an appealing scenario for employers. However, exemptions from the overtime requirements of the FLSA are just that — exceptions to the rule. They are very narrowly construed, and as the employer, you will always bear the burden of proving that you have correctly classified an employee as exempt.
HR Guide to Employment Law: A practical compliance reference manual covering 14 topics, including overtime.
New overtime regulations effective December 1, 2016
The Department of Labor (DOL) has released final overtime regulations, effective December 1, 2016, that increase the salary threshold for exemption from $455 per week to $913 per week. On an annual basis, this is a salary increase from $23,660 to $47,476 per year. The DOL will automatically update the standard salary and compensation levels every three years going forward. The DOL has set the total annual compensation for exempt highly compensated employees at $134,004, up from $100,000. Employers will be able to count nondiscretionary bonuses, incentive payments, and commissions towards as much as 10 percent of the salary threshold beginning December 1, 2016. In order to count, these payments must be made on a quarterly or more frequent basis.
Other issues to consider
Comp time. Although there are exceptions, it’s usually illegal to give non-exempt employees comp time (time off) instead of paying them overtime.
Child labor. Federal and state laws include special provisions to protect workers younger than 18. These laws can affect the type of work, wages, and hours that an employee can work.
Breaks. Employers need to make sure they follow federal and state law requirements regarding breaks, including meal breaks, for workers.
State-by-state comparison of 50 employment laws in all 50 states, including wage and hour laws, child labor, and breaks
Wage and hour law enforcement
The provisions of the FLSA are interpreted and enforced by the U.S. Department of Labor which investigates complaints and sometimes sues when it find violations. Many states also have agencies that enforce state labor laws and investigate complaints.
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